Most U.S. investors analyze and research companies located in the U.S., the Far East, and Europe. However, the nation just across the southern border is the rising star of mergers and acquisitions. The Mexican economy is growing, and investors worldwide are beginning to pay attention.
A front-page headline in the August 13th edition of The Wall Street Journal announced that Mexico is overhauling its oil industry and would end the country’s 75-year monopoly on oil and gas production. This would open up one some of the world’s largest untapped oil reserves to private companies, setting the stage for a Mexican energy boom.
Eighty-nine of the world’s top 100 auto parts makers are already in Mexico. From appliance manufacturers to high-tech start-ups, Mexican business is booming. When business is booming, mergers and acquisitions aren’t far behind.
Why are Mexican companies attractive to U.S. investors? There are seven reasons Mexico may be the next mergers and acquisitions hot spot.
1. Market availability and size
Mexico has free trade agreements with 44 countries. That is more than the U.S. and China combined. The North American Free Trade Agreement provides Mexico easy access to the world’s largest market, the U.S. and Canada.
According to FDI Markets, in 2012 Mexico attracted 21.84% of foreign direct investments in Latin America and the Caribbean, with 244 projects. The only country to attract more, as in 2011, was Brazil, which attracted 38.68% of foreign direct investment.
In addition to an ideal worldwide market, Mexico is the second largest Latin American economy after Brazil, with a population 118 million. Mexican companies have the markets needed to drive sales.
2. Fewer rules and regulations
According to the World Bank, Mexico ranks 36th in ease of starting a business. While rules and regulations are important, they cannot stifle innovation and growth. Mexico encourages entrepreneurs to create new companies and makes it easier for those companies to excel and grow. The overwhelming regulations businesses face in the U.S. make investing in Mexican companies very attractive.
Everyone believes China is the least expensive country for manufacturing. Yet China’s manufacturing labor costs overtook Mexico’s last year because of China’s high rates of wage inflation and its significantly higher energy costs. Labor costs in Mexico are very attractive when compared to others worldwide.
Projected future labor costs are just one reason U.S. investors are looking at Mexican companies for potential purchase or investment. Investors want a high-quality labor force, at the lowest possible cost, to maximize profits. The quality of Mexican manufacturers has made huge strides in recent years, evidenced by the number of major American companies moving manufacturing facilities to Mexico.
The key to any successful business has always been location, location, location! With the largest market in the free world located just across the border, Mexican companies have a distinct advantage over companies located in the Far East or Europe. Mexico also has easy access to growing markets in South America and can easily ship to Europe or Eastern markets.
5. Lower energy costs
Another critical factor is the cost of energy. The cost of energy in Mexico is equal to or less than the cost in the U.S. China pays 50 percent to 170 percent more for natural gas than Mexican companies. While electricity in the U.S. is less expensive than it is in Mexico, electricity in Mexico is still less expensive than it is in China and significantly less than other countries.
Should the Mexican government open up the national oil and gas fields to allow international development, the investment in Mexican-based energy companies will soar, and energy costs could decrease as supplies increase.
Building solid, successful companies requires access to well-educated, skilled talent. Mexico has some of the best universities in Latin America, and their manufacturing and production talent is gaining worldwide recognition for being proficient and affordable. Mexican institutions of higher education serve over 2.5 million students, which is about 30% of the university-age population, and the government hopes to expand this to 50% by 2020.
With well-educated leaders and skilled employees, Mexican companies, across many industries, are attractive acquisition targets for U.S. investors.
The Mexican economy has been slowly improving over the last five years, while many other economies have stagnated. According to the World Bank, Mexico has huge potential for accelerating economic growth. The country maintained strong economic growth of 3.9% during 2012. This has been supported by both external and internal demand, with a firmer expansion in services. Gross domestic product is expected to grow 3.5% during 2013 with even stronger growth predicted for 2014.
This steady growth has attracted worldwide interest in Mexico on the part of investors. Both domestic and international investments are increasing in Mexican companies.
Mexico is well-known for its beautiful beaches, exotic resorts and tourism. Thanks to its business advantages, Mexico is rapidly becoming a place where investors look for opportunities beyond pretty sunsets.